Customer loyalty programs are an important part of customer experience. It is a crucial part of a company’s strategy to keep existing customers happy and interested in the business. Dedicated loyalty programs serve as a driver for loyalty, customer retention, and profits. It incentivizes repeat purchases. Repeat purchases from existing customers yield a greater revenue than from the acquisition of new customers. If you look statistically, a mere 5% increase in customer retention can improve profitability by an incredible 95%. The cost of acquiring new customers is also much higher than keeping your existing shoppers. Thus, loyalty programs reward your existing customers to continue buying from you, thereby improving your profit margins.
Most shoppers prefer buying from brands that offer a strong loyalty program. Nearly 70% of customers admit that they are willing to explore other brands to get the best deals. As such, it is critical that businesses emphasise on creating multi-tiered programs that offer premium benefits and perks that are valuable to customers. Regardless of the company’s size, it is ever more important to keep loyalty and reward programs updated to ensure that their clients will remain loyal to them. 80% of the company’s future revenue is dependent on just 20% of existing customers.
5 benefits of establishing a loyalty program:
- Fortify a superior customer experience– For modern customers, experience is everything. They are willing to a premium price for superior service and customer experience. According to Forbes, 79% of online shoppers will turn to a competitor if they experience poor customer service in the first week. Loyalty programs are a proven method to elevate the customer experience. When customers are rewarded redeemable points in exchange for every purchase, they become more motivated to purchase again. This desire to return the favour is the sort of engagement that keeps customers invested. A sophisticated loyalty program brings joy to the customers and improves their experience with the brand.
- Retain existing customers– Loyal consumers spend 67% more on average than new ones. Customers appreciate loyalty programs because they often provide added incentives for making a purchase, with the rewards increasing linearly with more purchases, or depending on the size or scope of the item purchased. By properly leveraging the data collected via a loyalty program, brands can cut through advertising noise and form a deeper relationship with the customer. As a customer builds status within a loyalty program, deeper rewards can keep the relationship strong. Through thoughtful, targeted offers, brands are more likely to keep their customers from looking to other retailers and extend the customer lifecycle.
- Encourage customer referrals– A study by McKinsey revealed that referrals by friends and family generate more than twice the sales of paid advertising. Furthermore, referred customers have a 37% higher retention rate overall, according to a research study by Deloitte. If a loyalty program rewards customers for referring their friends, they will be more than happy to spread the word about the brand. Most brands employ a dual-sided reward mechanism, where both the referrer and their referral benefit from the process. It encourages existing customers to refer others, and as a result, businesses gain new customers.
- Build an army of brand advocates– A loyalty program can help companies build a network of brand advocates. Research shows that at least 92% of people trust word-of-mouth recommendations from friends or family more than any other form of marketing. A loyalty program provides a perfect chance to deepen their engagement. The more they engage the more likely they are to promote the brand. The most loyal customers act as not just buyers but also as marketers who spread the word about their favourite brands on social media. With loyalty programs, marketers are able to effectively improve the loyalty of existing customers as well as encourage referrals. This is beneficial as these customers act as brand ambassadors or advocates, improving the brand’s public image. Businesses don’t need to invest separately to acquire new customers because their brand advocates act as a channel to generate new leads.
- Boost reputation and growth– Loyalty programs serve a dual function- firstly, to incentivise new clients to stick around after purchasing the goods and services, and secondly to ensure that existing loyal clients still feel as if they are valued by the brand. By instituting a loyalty program, brands are not only improving customer appreciation of their business but also increasing the chances that existing clients will share this joy with those close to them. The more a customer feels appreciated by a business, the more he or she is likely to support that company and recommend it to others. This, in turn, carries on in a word-of-mouth cyclical nature that continues to achieve growth for the business.
Loyalty programs are effective marketing tools that increase growth, help retain customers, and improve brand reputation. Loyalty programs are crucial for businesses looking to build long-term customers. They’re a great way to drive customer interaction and build a deeper pool of data. As your customer knowledge grows, it’s important to ensure that you are leveraging the right data management tools to provide more relevant deals and offers to your customers.